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Investigating into the land supply situation in detail, we find that in
2015, the total GFA sold in government land sales originating from reclaimed
land and new towns encompassed only 50% of the overall figure, down from
73% in 2012. On the contrary, land that needs to go through town planning
processes of rezoning for development such as slopes, government sites
(such as former staff quarters), work sites etc. surged from 8% of the total
residential GFA in 2012 to 41% in 2015. This reflects that readily developable
government land is dwindling, and therefore the government is increasingly
relying on change of land use as a means of land supply, as a consequence
of the lack of large-scale land development project over the past decade.

2. The Demand: Land is Much More

than Housing

The vacancy rate of private residential property market in 2015
was estimated to be 3.7%, at its lowest level since 1990, or over the past two
and half decades. This clearly indicates that a significant supply-demand
imbalance still exists in the market.

In fact, data analysis over the past 30 years suggests that the
underlying forces for household formation has been fairly strong recently.
From 2011 to 2015, the combined average annual number of first marriages,
live births (only refers to babies whose both parents are permanent Hong
Kong residents), and divorces is even higher than the corresponding figure
for the period 1986 to 1995. However, comparing the two periods in question,
overall housing completions plummeted by some 60%.

The undersupply situation in the commercial sector remains. New
supply of Grade A office in Hong Kong from 2016 to 2020 is forecast to be
an average of 1.6 million square feet per annum (sf p.a.), which trails the
corresponding 20-year average absorption volume of some 2 million sf p.a.,
implying that office space shortage is likely to continue. Rising rents and
declining vacancy rates have been observed in almost all sub-markets in
the Grade A office sector, indicating across-the-board robust demand.

Since the onset of the millennium, the total retail sales value of
the city saw a 1.5x increase, but private retail space over the same 15 years
only grew by 23%. Such gap between supply and demand was particularly
pronounced during the past few years, with retail sales value growing by
73% against new supply of private commercial space of merely 3% for the
period 2009 to 2015. This has translated into soaring retail rents, sending
general inflation higher as well.

As for industrial properties, the vacancy rate for private flatted
factories in Hong Kong has actually been on a continual decrease since 1996
and was estimated to be 5.0% at the end of 2015, the lowest level since 1988.

The social need for space is equally, if not more acute. Statistics
released by the Hospital Authority (HA) revealed that the average in-patient
bed occupancy rates of all hospitals under HA during 10 days ended 17th
February, from 2014 to 2016 were 105%, 101% and 110% respectively.

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